Commentary on provisions of Bill/Act
Moratorium
Clause 1: GB Moratoriums
97 This clause introduces a new Part A1 to the Insolvency Act 1986. It will be situated before Part 1 but within the First Group of Parts of that Act. The new Part A1 is made up of 8 Chapters, which set out details for determining whether a company is eligible for a moratorium, how a moratorium is obtained, the length of a moratorium, the effects of a moratorium, details regarding the role of the monitor, and further miscellaneous and supplementary matters.
Chapter 1: provides an overview of new Part A1 and introduces Schedule ZA1
98 This inserts a new Schedule into the Insolvency Act 1986 (new Schedule ZA1), which sets out detailed provisions in determining a company’s eligibility for a moratorium.
Schedule ZA1
99 Schedule ZA1 (Moratorium: eligible companies) is inserted before Schedule A1, which is repealed by Schedule 3 paragraph 2 of this Bill.
100 This Schedule sets out which companies are eligible for the moratorium. Companies are generally eligible, unless excluded. Companies are ineligible if at the date of filing for a moratorium:
● the company is already subject to a formal insolvency procedure (including a moratorium that is in force at the date of filing);
· during the period of 12 months prior to the filing date, it has been subject to a moratorium, unless the court has ordered that the previous moratorium is not to be taken into account for this purpose;
· during the period of 12 months prior to the filing date, it has been subject to CVA or administration (for a temporary period this restriction is lifted by Schedule 4 to account for the impact of the COVID-19 pandemic).
101 The remaining paragraphs set out those financial services companies that are ineligible. They include: insurance companies; banks; electronic money institutions; investment banks and firms; companies which are parties to market contracts or any of whose property is subject to a market charge (market contract and market charge being defined by Part 7 of the Companies Act 1989); payment institutions; companies which are participants in a designated system or have property subject to a collateral security charge (within the meaning of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999); operators of payments systems, infrastructure companies, recognised investment exchanges, clearing houses and CSDs; securitisation companies; parties to capital market arrangements; public-private partnership project companies; and overseas companies whose functions correspond to those mentioned above and which would be ineligible if they were registered under the Companies Act 2006 in England and Wales or Scotland.
102 The Secretary of State may amend the list of companies that are excluded from entering a moratorium by regulations subject to the affirmative resolution procedure. In addition, Welsh or Scottish Ministers (as appropriate) may amend this Schedule to provide for the eligibility or ineligibility of a social landlord registered under either Part 1 of the Housing Act 1996 or Part 2 of the Housing (Scotland) Act 2010 for the purposes of the moratorium under Part A1 of the Insolvency Act 1986.
Chapter 2: sets out how an eligible company may obtain a moratorium
103 The directors of a company may obtain a moratorium by filing the relevant documents at court. If there is an outstanding winding-up petition against the company, or an overseas company is seeking to use these moratorium provisions, then the directors must apply to the court so that the court can determine whether it is appropriate to allow a moratorium (for a temporary period by operation of Schedule 4, a company (other than an overseas company) with an outstanding winding-up petition will be able to obtain a moratorium by filing at court, to account for the COVID-19 pandemic).
104 An overseas company will only be eligible for a moratorium if it is one which could be wound up under Part 5 of the Insolvency Act 1986; it is anticipated that the courts will exercise the same discretion when considering such an application as they would when considering the winding up of an overseas company. Even during COVID-19 an overseas company will need to apply to court for a moratorium, to ensure that it is within the jurisdiction of the UK courts before receiving the protection of a moratorium
105 The documents that must be filed are notices and statements confirming that: the directors wish to obtain a moratorium; the proposed monitor is qualified and consents to act in relation to the proposed moratorium; the company is eligible; in the opinion of the directors, the company is, or is likely to become, unable to pay its debts; and, in the proposed monitor’s view, it is likely that a moratorium would result in the rescue of the company as a going concern (although this requirement will be modified by Schedule 4 for a specified period to account for the impact of the COVID-19 pandemic). Rescue may be achieved by, for example, a company voluntary arrangement, a restructuring plan or simply a refinance. The notice does not need to specify via which route ‘rescue as a going concer n ’ is to be achieved .
106 Where it is proposed that more than one person should act as the monitor, each of them must make the necessary statements and their statement of consent to act must include details of which functions are to be carried out by which monitor; or whether they are to be carried out jointly. The list of documents that must be filed may be amended by secondary legislation.
107 A moratorium for a company comes into force on the date and time at which either the relevant documents are filed at court or, if the directors have applied to the court, at such time as the court makes the order. When the moratorium comes into force, the proposed monitor becomes the monitor in relation to the moratorium.
108 The monitor must notify the registrar of companies and all the company’s creditors, of which the monitor is aware, as soon as reasonably practicable that the moratorium is in force and when it will end.
Chapter 3: sets out how long a moratorium has effect.
109 As noted in paragraph 104 above, a moratorium will come in to force on the date and time that either the relevant documents are filed at court, or that the court makes the order. A moratorium will end at the end of the 20th business day beginning with the business day after the day on which the moratorium comes into force, unless it is extended or terminated early. For example, if the moratorium came into force on 1 June 2020, unless it were extended, it would end at the end of 29 June 2020. A moratorium cannot be extended once it has come to an end.
110 The directors may extend the moratorium for a further 20 business days if they file a notice and certain other documents at court. The first extension cannot happen until 15 business days have passed since the start of the moratorium. Where the directors extend the moratorium without creditor consent, the revised date will be 20 business days after the end of the initial period regardless of when, after the first 15 business days, the notice is filed at court. For example, if the directors file the necessary notice after 17 business days have passed from commencement, the revised moratorium end date will be 40 business days from commencement – not 37 business days. Those documents include statements that: the company is still, or is still likely to become, unable to pay its pre-moratorium debts; that all moratorium debts and pre-moratorium debts from which the company does not have a payment holiday that have fallen due have been met; and that, in the monitor’s view, the rescue of the company is still likely. Creditor consent for such an extension is not required. A moratorium liability is one that was incurred after the beginning of the moratorium and has fallen due.
111 Thereafter, the directors may (with consent from the company’s pre-moratorium creditors) file a notice with the court to extend the moratorium, which may then extend beyond 40 business days. The pre-moratorium creditors are creditors of pre-moratorium debts from which the company has a payment holiday, and which have fallen due or may fall due before the proposed revised end date of the moratorium. Directors cannot file such a notice until at least 15 business days have passed since the start of the moratorium. This will ensure that creditors have had the chance to experience dealing with the company in moratorium to know whether they wish to consent to the extension. There is no restriction from engaging with creditors in the first 15 business days of a moratorium if the company wishes to do so. Once the required documents referred to in paragraph 107 above (with the addition of a statement from the directors that creditors’ consent has been obtained) are filed at court, the moratorium is extended so that it ends with the revised date agreed with creditors. A moratorium may be extended more than once in this way, subject to not being greater than one year from commencement.
112 The directors may also apply to the court to seek an extension of the moratorium beyond 40 business days. This application for an extension cannot be made until at least 15 business days have passed since the start of the moratorium. The same documents as referred to in paragraph 107 (with the addition of a statement from the directors as to whether pre-moratorium creditors have been consulted and, if not, why not) must accompany the application. The court may extend the moratorium to a date specified in the order or may make such order as it thinks appropriate. When considering the application, the court must consider the interests of the pre-moratorium creditors and the likelihood that the extension will result in the rescue of the company as a going concern. A moratorium may be extended more than once in this way. In the course of other relevant proceedings, for example, an application to the court in relation to a scheme of arrangement or a restructuring plan, the court may also order that a moratorium which is in force be extended.
113 If the directors make a proposal for a company voluntary arrangement, and the moratorium would have ended before the proposal has been disposed of, then the moratorium will not end until the proposal is disposed of.
114 The moratorium will be brought to an end if the company enters a restructuring plan or a scheme of arrangement or if a voluntary arrangement takes effect, or if the company enters an insolvency procedure such as administration or liquidation.
115 The directors must notify the monitor of any change to the end of the moratorium. The monitor must then notify the registrar of companies and the company’s creditors of which they are aware.
Chapter 4: sets out the effect of moratorium on the company and its creditors
Introductory
116 This chapter contains provisions about the main effects of a moratorium for a company. It includes restrictions on the enforcement or the payment of debts that are defined as pre-moratorium debts for which a company has a payment holiday during the moratorium. A reference to pre-moratorium debts for which a company has a payment holiday during the moratorium is to pre-moratorium debts that have fallen due before the moratorium, or fall due during the moratorium, other than amounts payable in respect of: (a) the monitor’s remuneration or expenses (which is a contractual matter between the monitor and the company, the agreement for which may have been entered prior to the monitor’s appointment), (b) goods or services supplied during the moratorium (services include the continued provision and usage of property owned by another, for example a leased photocopier, or a software license, where the obligation (lease, license, etc) was entered into prior to the moratorium), (c) rent in respect of a period during the moratorium, (d) wages or salary arising under a contract of employment, (e) redundancy payments, or (f) debts or other liabilities arising under a contract or other instrument involving financial services.
117 This chapter also introduces Schedule ZA2 into the Insolvency Act 1986, which sets out the meaning of "contract or other instrument involving financial services". It also makes clear that the "monitor’s remuneration or expenses" does not include anything done by a proposed monitor before the moratorium begins.
Schedule ZA2
118 New Schedule ZA2 (Moratorium: contract or other instrument involving financial services) is inserted into the Insolvency Act 1986, immediately after Schedule ZA1. It sets out the type of contracts which fall under the definition of a "contract or other instrument involving financial services" in section A18, which provides that pre-moratorium debts and liabilities arising from such contracts and falling due before or during the moratorium will not be caught by the definition of pre-moratorium debts for which a company has a payment holiday during a moratorium. Such contracts include market contracts, qualifying collateral arrangements and property transfers, contracts secured by certain charges or arrangements, default arrangements and transfer orders, capital market arrangements, contracts forming part of a public-private partnership, derivatives, financial contracts, spot contracts, card-based payment transactions and securities financing transactions. The Secretary of State may amend the meaning of "contract or other instrument involving financial services" by regulations subject to the affirmative resolution procedure.
Publicity about moratorium
119 During the moratorium the company must display the name of the monitor and that a moratorium is in force for the company on each and every website and business document issued by or on behalf of the company. Business premises must also display notice of the moratorium.
Effects on creditors
120 Except in certain circumstances (e.g. a director presenting a winding-up petition, or a public interest winding-up petition presented by the Secretary of State) no insolvency proceedings can be commenced against the company during the moratorium period. If the directors intend to commence insolvency proceedings, they must notify the monitor. Except with the leave of the court, no steps may be taken to enforce any security over the company’s property (unless it is a security created under a financial collateral arrangement or a step to enforce a collateral security charge) or repossess any goods in the company’s possession under any hire-purchase agreement. No other proceedings or other legal process can be commenced or continued during the moratorium, except those before an employment tribunal (or arising therefrom), those relating to claims between an employer and a worker, or those with the court’s permission (which cannot be for the enforcement of pre-moratorium debts for which the company has a payment holiday).
121 A landlord may not exercise a right of forfeiture by peaceable re-entry (a right of irritancy in Scotland) in relation to premises let to the company, except where the court gives permission.
122 While in force the moratorium prevents a floating charge from crystallising and prevents restrictions being imposed on the disposal of any of the company’s property. If, due to the operation of the moratorium, the holder of a floating charge is prevented from giving notice that would have the effect of causing the floating charge to crystallise, or imposing restrictions on the disposal of the company’s property, the holder of the floating charge can give the relevant notice as soon as practicable after the end of the moratorium (or it later, the date it is notified of the end of the moratorium).
123 Security may only be given over a company’s assets during the moratorium, and will only be enforceable, if the monitor consented to the security being given because the monitor believed that the grant of security would support the rescue of the company as a going concern.
124 The directors of the company must notify the monitor before presenting a petition to wind the company up; before making an administration application; or before appointing an administrator; or before recommending that the company passes a resolution for voluntary winding up. Failure to do so without reasonable excuse would constitute a criminal offence.
Restrictions on transactions
125 During a moratorium, the company may not obtain credit of more than £500 from a person, unless that person has been informed that a moratorium is in force for the company. This includes entering a conditional sale agreement, entering into a hire-purchase agreement under which goods are bailed or hired and where the company is paid in advance for the supply of goods and services. The requirement to inform (as set out in section A25(1)) may be satisfied by the company’s compliance with the publicity requirements set out in section A19 (as described in paragraph 116 above), depending on the circumstances.
126 During a moratorium, the company cannot enter into a market contract, enter into a financial collateral arrangement, give a transfer order, grant a market charge or system-charge or provide collateral security (terms as defined in the Companies Act 1989, the Financial Collateral Arrangements (No. 2) Regulations 2003 (S.I. 2003/3226), the Financial Markets and Insolvency Regulations 1996 (S.I. 1996/1469) and the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (S.I. 1999/2979)).
Restrictions on payments and disposal of property
127 During a moratorium, the company may only make a payment above the permitted threshold in respect of a pre-moratorium debt from which the company has a payment holiday if:
· the monitor consents, or
· the court has ordered that it be paid or
· the payment discharges security against property that has been disposed of, with the permission of the court.
128 The permitted threshold, in respect of each person to whom the company makes a payment or payments, is the greater of £5,000 and 1% of the value of the unsecured debts owed by the company at the start of the moratorium. The monitor may give consent only if they think that the payment will support the rescue of the company as a going concern.
129 There are restrictions on the company disposing of property during the moratorium. Property that is not subject to security may only be disposed of if (i) the disposal is in the ordinary course of business (ii) the monitor consents or (iii) there is a court order. The monitor may give consent only if they think that the disposal will support the rescue of the company as a going concern. Property that is subject to security or is under a hire-purchase agreement may only be disposed of with the permission of the court, or if the disposal is in accordance with the terms of the security/agreement.
Disposals of property free from charges
130 During the moratorium the company will be allowed to dispose of property subject to a security interest and goods which are the subject of a hire-purchase agreement with the permission of the court or in accordance with the terms of the security/agreement. Consent will only be given if the court thinks that the disposal will support the rescue of the company as a going concern. Where the court gives its permission in relation to such property, it is a condition of the permission that the net proceeds (which the court may determine as the net amount that would be realised on sale of the property at an open market value) of the disposal are applied towards discharging the sums secured or payable under the hire-purchase agreement.
131 If a company contravenes certain provisions in this Chapter, it does not make any transaction void or unenforceable, nor does it affect the validity of any other thing.
Chapter 5: contains provisions about the monitor
132 During the moratorium, the monitor must monitor the company’s affairs in order to establish whether it remains likely that the moratorium will result in the rescue of the company as a going concern. The monitor may require the directors of the company to provide information and can rely on information provided by the company when forming this view, unless there are reasons to doubt its accuracy.
133 The monitor must bring the moratorium to an end at any time by filing a notice at court if the monitor thinks that: the moratorium is no longer likely to result in the rescue of the company as a going concern; the company has been rescued as a going concern; the monitor is unable to carry out its functions because the directors have failed to provide the information required by the monitor ; or the company is unable to pay its moratorium debts, and pre-moratorium debts from which the company does not have a payment holiday, which have fallen due. The moratorium ends on the date the notice is filed at court. The monitor may apply to the court for directions about carrying out their functions.
134 On an application by the directors or the monitor, the court may make an order to replace the monitor or appoint an additional monitor. Any monitor to be so appointed must make a statement that they are qualified to act and consent to do so. Any statement of consent to act must include details of which functions are to be carried out by which monitor; or whether they are to be carried out jointly. The monitor must notify the registrar of companies and the company’s creditors of which they are aware of the removal of a monitor or the appointment of a new monitor.
135 Where two or more persons act jointly as the monitor, a reference to the monitor is a reference to those persons acting jointly; where an offence of omission is committed, each of the persons appointed to act jointly commits the office and may be punished individually. Where persons act jointly in respect of only some of the functions of the monitor, this only applies in relation to those functions.
Chapter 6: contains provisions about challenges
136 A creditor, director, member of the company or any other person affected by the moratorium may apply to the court on the grounds that an act, omission or decision of the monitor during a moratorium has unfairly harmed the applicant. This could include a challenge that the monitor has not terminated the moratorium when they should have done on the grounds that the company is no longer rescuable (or on the grounds that rescue has been achieved). The court may confirm, reverse or modify an act or decision of the monitor; it may give the monitor directions; or it may make any other such order as the court sees fit, including bringing the moratorium to an end (although it may not order that the monitor pay compensation). Such an application may be made during the moratorium or after it has ended.
137 Rules may be made to enable the administrator or liquidator of a company that has previously been subject to a moratorium to apply to court to challenge the monitor’s remuneration on the grounds that it was excessive. Agreement on the monitor’s remuneration would have been between the company and the monitor.
138 During the moratorium, a creditor or member of the company may apply to the court on the grounds that the company’s affairs, business and property are being or have been managed in a way that has unfairly harmed the interests of its creditors or members generally or some in particular; or that any act or proposed act or omission causes or would cause such harm. The court may make any order it thinks fit, including bringing the moratorium to an end, regulating the management of the directors or requiring the directors to stop taking the action complained of.
Chapter 7: contains provisions about offences
139 If the monitor becomes aware that any officer of the company has committed an offence in relation to the moratorium, the monitor must report the matter to the appropriate authority and provide such information as that authority may require. In the case of a company registered in England or Wales, the appropriate authority is the Secretary of State; in the case of a company registered in Scotland, it is the Lord Advocate. In the case of an unregistered company, the appropriate authority is-
(i) if it has a principal place of business in England and Wales but not Scotland, the Secretary of State,
(ii) if it has a principal place of business in Scotland but not England and Wales, the Lord Advocate, and
(iii) if it has a principal place of business in both England and Wales and Scotland, the Secretary of State and the Lord Advocate;
(iv) if it does not have a principal place of business in England and Wales or Scotland, the Secretary of State.
140 The offences are detailed in full in Part A1. In addition, an officer of the company will commit an offence if they make a false representation, or fraudulently do, or omit to do, anything, for the purpose of obtaining a moratorium or an extension. There are also general offences which include, during a moratorium or within the 12 months leading up to a moratorium: an officer of the company concealing company property to the value of £500 or more, concealing any debt due to or from the company, fraudulently removing company property to the value of £500 or more, concealing or destroying any document affecting or relating to the company’s affairs or pawning, pledging or disposing of any company property obtained on credit (unless it is in the ordinary course of business). It is a defence to some of these general offences for a person to prove that they had no intent to defraud or, for other of the offences specified, that they had no intent to conceal the state of affairs of the company.
Chapter 8: contains miscellaneous and general provisions, including definitions and provision about regulations under this part
141 If the moratorium is in respect of certain types of regulated company, then the notice that the monitor sends of the commencement, extension or end of the moratorium, as well as a notice of change in monitor, must also be sent to the appropriate regulator. They must also be given notice of any qualifying decision procedure by which a decision is being sought from the company’s creditors. The regulator may participate (but not vote) in any qualifying procedure. The regulator is entitled to be heard on any application to court for permission to dispose of charged property or hire-purchase property. The regulator may apply to court to challenge either the monitor’s or director’s actions; or is entitled to be heard if another person has applied. The regulator will also be required to consent to the appointment of the proposed monitor and any proposed replacement monitor, and will be able to apply to court for an order to change the monitor.
142 The Secretary of State may by regulations modify Part A1 as it applies in relation to a company for which there is a special administration regime, or make provisions in connection with the interaction between Part A1 and any other insolvency procedure in relation to such a company. The Welsh and/or Scottish Ministers may, by regulations, modify this Part as it applies in relation to a company that is a social landlord registered under Part 1 of the Housing Act 1996 or Part 2 of the Housing (Scotland) Act 2010 respectively; or make provision in connection with the interaction between this Part and any other insolvency procedure in relation to such a company. In section A49, "insolvency procedure" includes the provision set out in section 143A to 159 of the Housing and Regeneration Act 2008, section 39 to 50 of the Housing Act 1996 and Part 7 of the Housing (Scotland) Act 2010; "ordinary administration" means the insolvency procedure provided for by Schedule B1; and "special administration regime" means an insolvency procedure that is similar or corresponds to ordinary administration and provides for the administrator to have one or more special objectives instead of or in addition to the objectives of an ordinary administration.
143 A floating charge document cannot provide that the obtaining of a moratorium or anything done with a view to obtaining a moratorium is an event which causes the charge to crystallise, imposes restrictions on the disposal of property that would not otherwise apply or is grounds for appointment of a receiver. Any such provision is void.
144 Chapter 8 also provides useful interpretations that are used throughout the Part. In particular, the terms "pre-moratorium debt" and "moratorium debt" are defined. The wording used in the definition of "pre-moratorium debt" is intended to bring in the distinction made in Re Nortel GmbH (in administration) and related companies [2013] UKSC 52, between provable debts and expenses in administration. Following the Supreme Court’s reasoning, liabilities such as contribution notices and financial support directions under the Pensions Act 2004 should be considered pre-moratorium debts (and, therefore, not payable during the moratorium) even if the request to pay them arises after the start of the moratorium.
145 Provision is made so that regulations made under this Part of the Insolvency Act can make different provision for different purposes, and consequential, supplementary, incidental, transitional or saving provision.
Clause 2 and Schedule 3: further amendments
146 This clause introduces Schedule 3, which contains consequential and other amendments to do with moratoriums under new Part A1 of the Insolvency Act 1986. There is a savings provision in relation to existing moratoriums in place under Schedule A1 of the Insolvency Act 1986.
Schedule 3
147 Paragraphs 1- 8: make various amendments to Part 1 of the Insolvency Act 1986 (company voluntary arrangements) to ensure that directors of a company that is subject to a moratorium may propose a voluntary arrangement for the company. They also remove references to Schedule A1, which is repealed by this Schedule. Paragraph 4 provides protection for creditors of unpaid moratorium debts (and unpaid pre-moratorium debts that the company was required to pay during the moratorium) in a subsequent company voluntary arrangement. Where the nominee’s report that leads to approval of a company voluntary arrangement is made during or within 12 weeks of the end of the moratorium, such creditors must be paid in full unless they agree otherwise.
148 Paragraphs 9, 13 and 14: ensure that unpaid moratorium debts (and unpaid pre-moratorium debts that the company was required to pay during the moratorium), as well as any fees and expenses of the official receiver, rank above all other claims and expenses, other than those of fixed charge creditors (to the extent such creditors can be paid out of the assets charged) where proceedings for winding up are begun during or within 12 weeks of the end of a moratorium. This is partly achieved by the insertion of new section 174A into the Insolvency Act 1986.
149 Paragraphs 10, 11 and 15: remove references to the old Schedule A1 moratorium in a CVA procedure as that has been removed from the Act.
150 Paragraph 12: ensures that section 127 of the Insolvency Act 1986 (avoidance of property dispositions etc.) has no effect in relation to a company where the winding-up order is based on a petition presented before the moratorium begins, unless the petition was presented under section 367 of the Financial Services and Markets Act 2000.
151 Paragraph 16: amends section 246ZD to include the ability of an administrator or liquidator to challenge the remuneration charged by a monitor in relation to a moratorium as a right of action that may be assigned.
152 Paragraphs 17 and 18: amend sections 246A and 246B to add the monitor and the moratorium to the list of office-holders and proceedings which can allow for remote attendance at meetings and the use of a website as a means of delivering or sending a notice.
153 Paragraph 19: amends section 247 to include a moratorium under Part A1 within the meaning of insolvency.
154 Paragraph 20: amends section 387 to remove references to the old Schedule A1 from the "relevant date" in relation to preferential debts.
155 Paragraph 21: amends section 388 so that acting as a monitor is included within the meaning of "acting as an insolvency practitioner".
156 Paragraphs 22, 23 and 27: amend sections 411 (company insolvency rules), 414 (fees order) and 431 (summary proceedings) to include the new moratorium procedure.
157 Paragraph 24: inserts new section 415B which will allow the Secretary of State to amend the monetary limits in relation to the moratorium.
158 Paragraph 25: removes existing section 417A (which relates to the old Schedule A1) from the Act.
159 Paragraphs 26 and 28: make amendments for the inclusion of the relevant criminal offences related to the moratorium scheme, and update section 430 Insolvency Act 1986 in light of the Criminal Justice Act 2003.
160 Paragraph 29: amends section 434 to ensure that the provisions in Part A1 also bind the Crown.
161 Paragraph 30: omits Schedule A1 from the Insolvency Act 1986.
162 Paragraphs 31: amends Schedules B1 (Administration) to remove references to the old Schedule A1 and ensure that unpaid moratorium debts (and unpaid pre-moratorium debts that the company was required to pay during the moratorium) rank above all other claims and expenses, other than those of fixed charge creditors (to the extent such creditors can be paid out of the assets charged) where a company enters administration upon or within 12 weeks of the end of a moratorium. This is partly achieved by the insertion of new paragraph 64A into Schedule B1 of the Insolvency Act 1986.
163 Paragraph 32: amends Schedule 8 (Provision capable of inclusion in company insolvency rules) so that rules in respect of the matters listed in Schedule 8 can also be made for the moratorium under Part A1.
164 Paragraph 33: amends Schedule 10 (Punishment of Offences) to remove the entries that relate to offences under the old Schedule A1 and add the maximum sentences for the new offences introduced in Part A1.
165 Paragraph 34: amends the Building Societies Act 1986 to omit reference to section 1A of the Insolvency Act 1986, which has been omitted by paragraph 2 of this Schedule.
166 Paragraph 35: amends the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 to remove references that relate to Schedule A1.
167 Paragraphs 36-38: amend the legislation for limited liability partnerships so that the moratorium provisions also apply to them.
168 Paragraph 39: amends the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 by adding reference to the monitor and their functions to Schedule 2 of those regulations.
169 Paragraph 40: amends the Financial Collateral Arrangements (No.2) Regulations 2003 by omitting paragraph (5) because it disapplied certain paragraphs of Schedule A1 to the Insolvency Act 1986, which is being repealed by this Bill.
170 Paragraph 41: amends the Insolvency Practitioners Regulations 2005 to ensure that an insolvency practitioner acting as a monitor is covered by these regulations.
171 Paragraph 42: amends section 154 of the Banking Act 2009 to remove references that relate to Schedule A1.
172 Paragraphs 43-45: amend the Charities Act 2011 to provide (in relation to section 245 of that Act) that regulations under (1)(b) of that Act may not apply Part A1 of the Insolvency Act 1986 in relation to a CIO that is a social landlord registered under Part 1 of the Housing Act 1996; but new section 247A is inserted to allow Welsh Ministers to provide by regulations that Part A1 of the Insolvency Act 1986 may apply (with or without modifications as set out in the regulations) to a CIO that is a registered social landlord under the Housing Act 1996. In addition, the consequential power in section 347 of the Charities Act 2011 Act may be used to disapply or modify specified provisions of the Housing and Regeneration Act 2008 and the Housing and Planning Act 2016 in relation to registered social landlords that are CIOs.
173 Paragraphs 46-48: amend the Investment Bank Special Administration Regulations 2011 to remove references that relate to Schedule A1.
174 Paragraph 49: amends the Charitable Incorporated Organisations (Insolvency and Dissolution) Regulations 2012 to apply new Part A1 of the Insolvency Act to CIOs; except where the CIO is a private registered provider of social housing or is registered as a social landlord under Part 1 of the Housing Act 1996.
175 Paragraphs 50-53: amend the Co-operative and Community Benefit Societies Act 2014 to remove references that relate to Schedule A1 and to ensure that secondary legislation can be made, by the Treasury with the concurrence of the Secretary of State, to apply the moratorium provisions to co-operative and community benefit societies, while not allowing it to apply in relation to a society that is registered as a social landlord under the Housing Act 1996 or Housing (Scotland) Act 2010. Welsh and Scottish Minsters, respectively, may, by regulations, provide for the moratorium provisions to apply to social landlords registered under these Acts.
176 Paragraph 54: amends the Co-operative and Community Benefit Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014 to alter the definition of the Insolvency Act 1986 so as to save the Schedule A1 moratorium provisions until the new Part A1 provisions are modified and applied by regulations.
177 Paragraph 55: amends The International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 to ensure that the moratorium provisions do not override anything contained in these regulations in respect of an aircraft object in respect of which an international interest has been registered.
Clause 3 and Schedule 4: temporary modifications in light of coronavirus
178 This clause introduces Schedule 4 to the Bill, which makes temporary modifications to the moratorium provisions in Part A1 of the Insolvency Act 1986 in light of the coronavirus. Part 2 of Schedule 4 contains the modifications which have been made to the permanent provisions of the moratorium during the COVID-19 crisis. Part 3 of Schedule 4 makes temporary rules for England and Wales and Part 4 makes temporary rules for Scotland.
Schedule 4
179 The Schedule sets out the "relevant period" for the provisions in Schedule 4. The relevant period will begin on the day on which Schedule 4 comes into force and end on 30 June 2020 or one month after the coming into force of the Act (whichever is later). The end date may be shortened or extended by regulations; and may be extended more than once. There is also a power to cease the effect of any of the provisions in the Schedule before the end of the relevant period.
180 During the relevant period, a company is not eligible for a moratorium if the company is a regulated company that (a) has a permission under Part 4A of the Financial Services and Markets Act 2000 to carry out regulated financial activities and (b) is not subject to any limitation under Financial Services and Markets Act 2000 preventing the company holding money for a client (whether on trust or otherwise).
181 During the relevant period, the directors of an eligible company that is subject to an outstanding winding-up petition and is not an overseas company may obtain a moratorium for the company by filing the relevant documents at court (rather than by application to the court).
182 During the relevant period, a modified statement from the monitor is required as part of the relevant documents set out in section A6. The monitor is required to disregard any worsening of the financial position of the company that relates to COVID-19. Paragraph 6(1)(b) of part 2 of Schedule 4 has made an amendment in section A6(1)(e) of Insolvency Act 1986 by inserting at the end of it: "or would do so if it were not for any worsening of the financial position of the company for reasons relating to coronavirus".
183 The monitor will be required to state that in their view it is likely that a moratorium would result in the rescue of the company as a going concern or would do so if it were not for any worsening of the financial position of the company for reasons relating to coronavirus. A modified statement will also be required when an extension to the moratorium is being sought in sections A10, A11 and A13.
184 During the relevant period, companies that, within twelve months prior to filing for a moratorium have been subject to a previous moratorium, a CVA or in administration (but are not currently subject to a moratorium, CVA or in administration) are permitted to file or apply for a moratorium.
185 When a company enters a moratorium during the relevant period, the monitor’s obligation to monitor the company’s affairs will be modified. The monitor will be required to form a view whether it is likely that the moratorium will result in the rescue of the company as a going concern, or that, if one were to disregard any worsening of the financial position of the company for reasons relating to coronavirus, it is likely that the moratorium would result in the rescue of the company as a going concern.
186 When a company enters a moratorium during the relevant period, the monitor’s obligation to bring the moratorium to an end will be modified. If the monitor thinks that the moratorium is not likely to result in the rescue of the company as a going concern, and that, even if one were to disregard any worsening of the financial position of the company for reasons relating to coronavirus, the moratorium would not be likely to result in the rescue of the company as a going concern, the monitor must bring the moratorium to an end.
187 Part 3 of this Schedule sets out provisions that will apply pending the necessary amendments being made to the Insolvency (England and Wales) Rules 2016 (the Rules) and Part 4 of this Schedule sets out provisions that will apply pending the necessary amendments being made to the Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 (the Scottish Rules) and Rules of Court. These temporary provisions will cease to have effect at the end of the relevant period (30 June 2020 or one month after the coming into force of the Act, whichever is later).
188 With regard to England and Wales and Part 3 of the Schedule, the provisions ensure that the court dealing with a moratorium application is the court that has jurisdiction to wind up the company. Provision is made about the content and timing of the director’s notice to obtain and extend a moratorium, the proposed monitor’s statement and consent to act (including those of a replacement or additional monitor), the monitor’s notice to the company’s creditors and registrar of companies when the moratorium comes into force and the notices required for a change in the end date of the moratorium. Rules 1.4, 1.8 and 1.9 of the Rules apply regarding the format of documents in so far as they are relevant to any requirement imposed by provisions in Part 3 of the Schedule and rule 1.5 of the Rules applies for the purposes of authentication where documents are required to be authenticated. Specified rules contained in Chapter 9 of Part 1 of the Rules apply in relation to the delivery of documents. In respect of applications to court, the provisions of the Civil Procedure Rules and any related Practice Directions apply for the purposes of proceedings under Part A1 of the Insolvency Act 1986 (the moratorium) together with rule 1.35 and specified and modified rules from Part 12 of the Rules. In addition, Part 3 of the Schedule draws on the relevant rules in Parts 15 and 16 of the Rules (with modifications) to apply the qualifying decision-making procedure (defined in the Insolvency Act 1986 section 246ZE), voting rights and majority rules when directors are seeking creditors’ consent to extend the moratorium. The notice period of the directors’ notice to the monitor before entering insolvency proceedings, and the contents of the monitor’s notice to the court to end the moratorium are specified. Part 3 of the Schedule also sets the priority of moratorium debts in a subsequent administration or winding up and sets a time limit on when a challenge can be made to a monitor’s fees by a subsequent administrator or liquidator. Information that must be used to identify and contact both the company and the monitor are listed. In deciding whether to bring the moratorium to an end, the monitor must disregard any debts that are likely to be paid within 5 days, and any debts which the creditor has agreed to defer until a later date.
189 With regard to Scotland and Part 4 of the Schedule, the provisions ensure that the court dealing with a moratorium application is the court that has jurisdiction to wind up the company. Provision is made about the content and timing of the director’s notice to obtain and extend a moratorium, the proposed monitor’s statement and consent to act (including those of a replacement or additional monitor), the monitor’s notice to the company’s creditors and registrar of companies when the moratorium comes into force and the notices required for a change in the end date of the moratorium. Rules 1.5, 1.9 and 1.10 of the Scottish Rules apply regarding the format of documents in so far as they are relevant to any requirement imposed by provisions in Part 4 of the Schedule and rule 1.6 of the Scottish Rules applies for the purposes of authentication where documents are required to be authenticated. Specified rules contained in Chapter 9 of Part 1 of the Scottish Rules apply in relation to the delivery of documents. In addition, Part 4 of the Schedule draws on the relevant rules in Parts 5 and 6 of the Scottish Rules (with modifications) to apply the qualifying decision-making procedure, voting rights and majority rules when directors are seeking creditors’ consent to extend the moratorium. The notice period of the directors’ notice to the monitor before entering insolvency proceedings, and the contents of the monitor’s notice to the court to end the moratorium are specified. Part 4 of the Schedule also sets the priority of moratorium debts in a subsequent administration or winding up and sets a time limit on when a challenge can be made to a monitor’s fees by a subsequent administrator or liquidator. Information that may be used to identify and contact both the company and the monitor are listed. In deciding whether to bring the moratorium to an end, the monitor must disregard any debts that are likely to be paid within 5 days, and any debts which the creditor has agreed to defer until a later date.
Clause 4 and Schedule 5 and 6: Moratoriums in Northern Ireland
190 This clause makes provision for Northern Ireland that is equivalent to that made by clause 1 for Great Britain. It inserts a new Part 1A into the Insolvency (Northern Ireland) Order 1989, corresponding to the new Part A1 of the Insolvency Act 1986.This clause also introduces Schedules 5 and 6 which respectively insert Schedule ZA1 dealing with conditions for eligibility and Schedule ZA2 dealing with contracts involving financial services into the Insolvency (Northern Ireland) Order 1989. These provisions are essentially identical to what is done for Great Britain. There are some technical differences in the drafting, due to minor differences in the underlying law in Northern Ireland.
Clause 5 and Schedule 7: Moratoriums in Northern Ireland - further amendments
191 This clause introduces Schedule 7, which contains consequential and other amendments to do with moratoriums under new Part 1A of the Insolvency (Northern Ireland) Order 1989. For the most part, the amendments made by Schedule 7 correspond to those made by Schedule 3. However, Schedule 7 does not include amendments to UK-wide legislation that deal with reserved matters.
Clause 6 and Schedule 8: Moratoriums in Northern Ireland – temporary modifications
192 Clause 6 introduces Schedule 8 which makes temporary modifications to Part 1A of the Insolvency (Northern Ireland) Order 1989 in the light of COVID-19.
193 As with Schedule 4, Schedule 8 sets out the "relevant period" for the temporary moratorium provisions that will apply to Northern Ireland. The relevant period will begin on the day this act will come into force and end on 30 June 2020 or one month after the coming into force of the Act (whichever is the later). The end date may be shortened or extended by regulations; and may be extended more than once. There is also a power to cease the effect of any of the provisions in the Schedule before the end of the relevant period. These powers are to be exercised by the Department for the Economy in Northern Ireland. The modifications to the Insolvency (Northern Ireland) Order 1989 that are made by Part 2 of the Schedule correspond to those made by Part 2 of Schedule 4..
194 Part 3 of this Schedule sets out provisions that will apply pending the necessary amendments being made to the Insolvency Rules (Northern Ireland) 1991. These temporary provisions will cease to have effect at the end of the relevant period (30 June 2020 or one month after the coming into force of the Act, whichever is later).
195 Provision is made about the content and timing of the director’s notice to obtain a moratorium, the proposed monitor’s statement and consent to act (including those of a replacement or additional monitor) and the notices required for a change in the end date of the moratorium. Relevant Rules are applied regarding the format of documents in so far as they are relevant to any requirement imposed by provisions in Part 3 of the Schedule and in relation to the delivery of documents. The requirements for authentication of documents are set out. In respect of applications to the High Court, the provisions of the Insolvency Rules (NI) 1991 apply for the purposes of proceedings under Part 1A of the Insolvency (Northern Ireland) Order 1989 (the moratorium), with certain of those Rules being modified. In addition, Part 3 of the Schedule draws on the relevant Rules (with modifications) to apply the procedures for meetings, voting rights and majority rules when directors are seeking creditors’ consent to extend the moratorium. Part 3 of the Schedule also sets the priority of moratorium debts in a subsequent administration or winding up and sets a time limit on when a challenge can be made to a monitor’s fees by a subsequent administrator or liquidator.
Arrangements and reconstructions for companies in financial difficulty
Clause 7 and Schedule 9
196 This clause introduces Schedule 9 into the Bill. That Schedule inserts a new Part 26A (Arrangements and Reconstructions for Companies in Financial Difficulties) into the Companies Act 2006, which sets out the arrangements for a company to enter into a ‘restructuring plan’, and makes consequential amendments.
Schedule 9
197 Paragraph 1: inserts Part 26A into the Companies Act 2006 immediately after Part 26 ("Arrangements and Reconstructions", now named "Arrangements and Reconstructions General"); it is entitled: "Arrangements and Reconstructions for Companies in Financial Difficulty".
198 Section 901A: sets out that this Part of the Act applies to a company: that has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect its ability to carry on business as a going concern; and a compromise or arrangement (a ‘restructuring plan’) is proposed between the company and its creditors and/or its members, for the purpose of eliminating, reducing, preventing or mitigating those financial difficulties. In this Part, the term "arrangement" includes a reorganisation of the company’s share capital by consolidation of shares of different classes or by the division of different shares into shares of different classes (or both). "Company" means a company liable to be wound up under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989. In relation to section 901J "company" refers to a company within the meaning of the Companies Act 2006). The provisions of this Part have effect subject to Part 27 (mergers and divisions of public companies) where that Part applies (in particular sections 902 and 903
199 Section 901B: allows the Secretary of State, by regulations, to provide that this Part does not apply where (a)the company proposing the restructuring plan is an authorised person (within the meaning of the Financial Services and Markets Act 2000) or an authorised person of a specified description (specified in regulations), or (b) a plan is proposed between a company, or a company of a specified description, and any of its creditors and those creditors are, or include, creditors of a specified description. This will allow for the exclusion under this Part of certain companies providing financial services. Such regulations are subject to the affirmative resolution procedure.
200 Section 901C: sets out who may apply to the court for an order to summon a meeting. This section provides that, as a default, creditors and members whose rights would be affected by the compromise or arrangement must be permitted to participate in a meeting ordered by the court. However, if the court is satisfied that a class of creditors or members has no genuine economic interest in the company (an ’out of the money’ class), the court may order for that class of creditors or members to be excluded from the meeting summoned in subsection (1). An application to exclude an out of the money class of creditors or members must be made by the original applicant under subsection (1). This section is subject to 901H and 901I (see below).
201 Sections 901D and 901E: deal with what information must be provided to creditors and members where a meeting is summoned under section 901C. Every notice of the meeting must be accompanied by a statement that, amongst other things, explains the effect of the proposed ‘restructuring plan’ and any material interests of the directors of the company and the effect of the plan on those interests, if it is different to that on the similar interests of others. Likewise, if the plan affects the rights of debenture holders of the company in a different way, the statement must provide the same details for the trustees of any deed for securing the issue of the debentures. Where notice of the meeting is given by advertisement, that advertisement must state how a copy of the statement may be obtained free of charge by any creditor or member. If the company fails to comply with these sections, the company and any officer of the company who is in default (which could include a liquidator or administrator of the company and a trustee of a deed for securing the issue of debentures) commits an offence, unless the default was due to the refusal of a director, or trustee for debenture holders, to supply the necessary particulars of their interests (in which case that person commits an offence). It is the duty of any director of the company and any trustee for its debenture holders to give notice to the company of such matters that are necessary for the statement.
202 Section 901F: If 75% or more in value of creditors (or class of creditors) or members (or class of members) present and voting either in person or by proxy at the meeting agree to a restructuring plan, then an application may be made to the court to sanction the plan. Drawing on well-established principles in schemes of arrangement, the court has absolute discretion over whether to refuse to sanction a plan even though the necessary procedural requirements have been met. This may be, for example, because a plan is not just and equitable. The restructuring plan is binding on all creditors and members included within its scope once the court’s order sanctioning it is filed with the registrar of companies (or, if the plan is in relation to an overseas company not required to register particulars, published in the Gazette). Where the court makes an order sanctioning the plan, if the company is in administration or being wound up, the court order may provide an order for the administration or winding up to be stayed, or for the appointment of the administrator or liquidator to cease to have effect; or give such directions with regard to the conduct of the administration or liquidation as it thinks appropriate for facilitating the plan. This section is subject to sections 901G, 901H and 901I (see below).
203 Section 901G: sets out when a restructuring plan may be sanctioned using cross-class cram down. This section provides that the court may sanction a despite it not having been agreed by 75% in value of a class of creditors or a class of members ("the dissenting class"), if certain conditions apply. Those conditions are that: (A none of the members of a dissenting class would be any worse off under the restructuring plan than they would be in the event of the relevant alternative (see below); and (B) that at least one class who would receive a payment or would have a genuine economic interest in the company in the event of the relevant alternative, must have voted in favour of the plan.
204 When determining the ‘relevant alternative’ the court should consider what would be most likely to occur in relation to the company if the restructuring plan were not sanctioned. As with section 901F, the court will still have an absolute discretion whether or not to sanction a restructuring plan, and may refuse sanction on the grounds that it would not be just and equitable to do so, even if the conditions in section 901G have been met.
205 The Secretary of State may by regulations, subject to the affirmative procedure, add, remove or vary the conditions that must be met before the court may sanction a restructuring plan to which a class, or classes, of creditors or members have dissented.
206 Section 901H: provides specific provisions for those companies seeking a restructuring plan in relation to moratorium debts. If an application to the court under 901C(1) is made before the end of the period of 12 weeks beginning a day after the end of a moratorium under Part A1 of the Insolvency Act 1986 (or Part 1A of the Insolvency (Northern Ireland) Order 1989), and the proposed plan includes provision in respect of creditors with moratorium or pre-moratorium debts, the court may not sanction that plan if the relevant creditor has not agreed to that provision. An equivalent change has also been made to the existing Part 26 of the Companies Act 2006 (see new section 899A which is added by paragraph 35 of Schedule 9).
207 Section 901I: makes specific provision for those companies seeking a restructuring plan in relation to aircraft-related interests. If an application is made to the court under 901C and the proposed restructuring plan includes provision in respect of creditors with an aircraft-related interest ( a registered interest within the meaning of the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015), then the court may not sanction the plan if any such creditor has not agreed to that provision. An equivalent change has also been made to the existing Part 26 of the Companies Act 2006 (see new section 899B which is added by paragraph 35 of Schedule 9).
208 Section 901J: provides the court with powers, while sanctioning a ‘restructuring plan’ that involves the reconstruction of one or more companies, or the amalgamation of two or more companies, to make provision to facilitate that reconstruction or amalgamation.
209 Section 901K: If a court order sanctioning a restructuring plan amends the company’s articles of association or any constitutional resolution or agreement, the company must send a copy of the amended articles or resolution/agreement to the registrar of companies with a copy of the court order. If the company fails to comply then the company and every officer of the company who is in default commits an offence.
210 Part 2: makes consequential amendments to other legislation affected by these changes, to ensure that the new Parts 26A fits as appropriate.
Winding-up petitions
Clause 8 and Schedule 10
211 This clause introduces Schedule 10 into the Bill. The Schedule prevents certain statutory demands made by creditors from being effective. It temporarily prohibits a winding-up petition from being brought against a company on the grounds that it is unable to pay its debts, or a winding-up order from being made on those grounds, where the inability to pay is the result of COVID-19.
Schedule 10
212 Paragraph 1 prevents the use of a statutory demand to bring a winding-up petition against a company, effectively voiding it. The provision applies to all statutory demands served between 1 March 2020 and 30 June 2020 (or one month after the coming into force of the Bill when enacted, whichever is the later), and prevents them from forming the basis of a winding-up petition presented at any point after 27 April 2020.
213 Paragraphs 2 and 3 prohibit (for registered and unregistered companies respectively) a petition from being presented against a company on the grounds that it is unable to pay its debts, unless the petitioner has reasonable grounds to believe that the inability to pay is not the result of COVID-19. The policy was announced on 25 April 2020 as taking effect from 27 April 2020.
214 Paragraph 4 sets out that where a petition is presented in the period between the policy taking effect (on 27 April 2020) and before the Bill being enacted and coming into force, but the above condition was not met, the court may make an order for the company’s position to be restored to what it would have been if the petition had not been made. This allows the court to undo any negative effects of winding-up petitions that are brought under the pre-existing law, and may lead to the petitioner becoming liable for the cost of doing so.
215 The official receiver is a statutory office holder and officer of the court who is required by law to investigate the company’s affairs when a winding-up order is made. Where the official receiver considers that a petition was presented in the above period and the above condition was not met, they must refer the matter to the court for it to determine whether an order should be made restoring the company’s position to what it would have been had the winding-up order not been made. There is no official receiver in Scotland and therefore the obligation to refer the matter to court has been given to the interim liquidator. That is the person who is first appointed liquidator when a winding-up order is made in Scotland.
216 Paragraphs 5 and 6 prohibit a winding-up order from being made against a company on the grounds that it is unable to pay its debts. The order may only be made if the court is satisfied that the company would be unable to pay its debts even if coronavirus had not had a financial effect on the company.
217 As a result of paragraph 7, any winding-up order that is made in the interim period between this policy taking effect on 27 April 2020, and the Bill being enacted, is void if it does not meet the above requirement. Any actions taken by the official receiver, liquidator or provisional liquidator in respect of that order, however, will not make them liable in any civil or criminal proceedings. This is to protect insolvency office-holders who have taken actions that were required during the currency of the order, such as collecting in and selling company property. The court may direct the official receiver, liquidator, or provisional liquidator to take whatever action is necessary to restore the company to the position it was in prior to the petition being presented. Where the official receiver (or, in Scotland, interim liquidator) considers that an order is void due to this paragraph, and that it might be appropriate for the court to make directions, they must refer the matter to the court.
218 Paragraphs 8 to 18 make provision for the adjustment of time limits in other provisions of the Insolvency Act 1986, where the winding-up petition was presented in the period between 27 April 2020 and the later of one month after the Bill has been enacted and come into force and 30 June, and the court has wound up the company on the grounds that it is unable to pay its debts.
219 The commencement of winding up will be from the date of the winding-up order, rather than the date that the petition was filed. This means that the petition will not prevent disposals of the company’s property (which are voided from the commencement of the winding up unless the court orders otherwise). As a result of the change, the company will not need to seek permission from the court to engage in its normal trading once a petition has been presented. The change also protects, for example, financial institutions who do business with the company, who due to the change in advertising of the petition (paragraph 19(3)) may not be aware that a petition has been made.
220 When a winding-up order is made, certain transactions that the company entered into prior to winding up may be reversed for the benefit of its creditors and certain fraudulent behaviour prior to winding up can attract criminal liability. The Schedule adjusts the periods in which transactions can be overturned or possible fraudulent behaviour assessed (extending them backwards) to take account of the change in commencement date. This extension is limited to a maximum of six months.
221 Paragraphs 19 and 20 make provision to modify the Insolvency Rules 2016, and, in Scotland, Rules of Court, where a winding-up petition has been presented in the period between the day on which the Bill is enacted and come into force and a month thereafter or 30 June 2020 whichever is the later. The Rules are, in summary, modified such that any requirements or permissions to provide notice of the petition or to publish it do not apply until the court has determined that it is likely to be able to make a winding-up order. The winding-up petition must contain a statement by the creditor that they consider the additional condition for the making of the winding-up order is met (i.e. that the company’s inability to pay its debts is not the result of COVID-19). The court does have power to give permission disapplying certain of these modifications.
Clause 9 and Schedule 11
222 This clause and Schedule make provision for Northern Ireland corresponding to that made for GB by clause 8 and Schedule 10.
Wrongful trading
Clause 10: suspension of liability for wrongful trading – GB
223 The measure to temporarily suspend liability under wrongful trading provisions in the Insolvency Act 1986 is in section 10 of this Act. The provision does not formally amend the Insolvency Act 1986, but instead alters how the relevant sections of that Act will be applied in relation to a company’s financial position during the relevant period.
224 Subsection (1): sets out that the court will not hold a director responsible for any worsening of the financial position of the company or its creditors during the relevant period, which is defined later. There is no requirement to show that the company’s worsening financial position was due to the COVID-19 pandemic.
225 Subsections (3), (4) and (5): set out that subsection (1) does not apply if at any time during the relevant period the company is excluded from being eligible by virtue of its inclusion within specified paragraphs of Schedule ZA1 to the Insolvency Act 1986 (insurance companies, banks, electronic money institutions, investment banks and firms, payment institutions etc.).
226 Subsection (2): defines the relevant period as beginning on 1 March 2020 and ending on 30 June 2020 or one month after the coming into force of this Act, whichever is the later.
227 Subsection (7): confirms that the provisions must be treated as if they are contained in Part 4 of the Insolvency Act 1986 (for liquidation) or Part 6 of that Act (for administration). This means that the suspension will apply wherever wrongful trading provisions are applied by the Insolvency Act 1986 or other legislation, for example, in the case of limited liability partnerships.
228 Subsection (8): sets out that this provision does not have effect in relation to building societies, friendly societies or credit unions.
Clause 11: suspension of liability for wrongful trading – NI
229 This clause temporarily suspends liability under wrongful trading provisions in the Insolvency (Northern Ireland) Order 1989.
230 Subsection (1): sets out that the court will not hold a director responsible for any worsening of the financial position of the company or its creditors during the relevant period, which is defined later. There is no requirement to show that the company’s worsening financial position was due to the COVID-19 pandemic.
231 Subsection (2): defines the relevant period as beginning on 1 March 2020 and ending on 30 June 2020 (or one month after Royal Assent if later).
232 The end date may be amended by the Department for the Economy in Northern Ireland under clause 40.
233 Subsections (3) to (6) and (8): set out the companies, mainly those involved in financial services, whose directors do not get the benefit of the clause.
234 Subsection (7): confirms that the clause must be treated as if contained in Part 5 of the Insolvency (NI) Order 1989. This means that the suspension will apply wherever wrongful trading provisions are applied by the Insolvency (NI) Order 1989 or other legislation, for example, in the case of limited liability partnerships.
Termination clauses in supply contracts
Clause 12: protection of supplies of goods and services
235 This clause introduces two new sections, 233B and 233C and Schedule 4ZZA into the Insolvency Act 1986. Section 233B prohibits the use of termination and other insolvency related clauses in contracts for the supply of goods and services unless exempted under Schedule 4ZZA. Section 233C includes powers to amend both 233B and the exemptions listed in Schedule 4ZZA, by regulations.
Section 233B
236 A new section 233B is inserted into the Insolvency Act 1986. It prohibits reliance on termination and other clauses in contracts for the supply of goods and services that would otherwise apply when a company enters the following ‘relevant insolvency procedure’:
● the company enters a (new-style) moratorium as set out in Part A1 of the Insolvency Act 1986
● the company enters administration;
● an administrative receiver is appointed, other than in succession to another administrative receiver;
● a CVA proposal is approved under Part I of Insolvency Act 1986;
● a company goes into liquidation;
● a provisional liquidator is appointed, other than in succession to another provisional liquidator; or
● a court order is made under section 901C(1) of the Companies Act 2006 (order summoning meeting in relation to compromise or arrangement)
237 A provision of a contract for the supply of goods or services, which would entitle the supplier to terminate or do ‘any other thing’ in respect of that contract because the company enters a relevant insolvency procedure, ceases to have effect. Where an event has occurred that would have allowed a supplier to terminate a supply contract before the company entered a relevant insolvency procedure but that right has not been exercised, it is suspended once the company enters the relevant insolvency procedure. If the supplier’s right to terminate arises after the insolvency procedure begins (for example, non-payment for goods supplied after that time) then this right is not prohibited.
238 Where a provision of a contract ceases to have effect, or is suspended under this section the supplier may terminate the contract in the following circumstances:
● where the office-holder, as defined under this section, or company (as applicable) consents to the termination of the contract, or
● with the permission of the court, where the court is satisfied that the continuation of the contract would cause the supplier hardship.
This provides safeguards for suppliers who may terminate the contract in these circumstances.
Section 233C
239 A new section 233C is inserted into the Insolvency Act 1986 and allows the Secretary of State to remove a relevant insolvency procedure from section 233B and make changes to Schedule 4ZZB, so as to remove, amend or add exemptions to the application of section 233B. These powers may be exercised by regulations made under an affirmative procedure statutory instrument which may include different provision for different purposes consequential, transitional and supplementary provisions. The power to amend enactments includes Acts of the Scottish Parliament and secondary legislation made under a Scottish Act.
240 The provisions of sections 233A and 233B and Schedule 4ZZA bind the Crown. The amendments made under clause 12 have effect in relation to contracts entered into before or after the day on which it comes into force.
Section 4ZZA
241 A new Schedule 4ZZA is inserted into to the Insolvency Act 1986. Part 1 specifies exclusions from the restrictions on termination and other clauses that apply under section 233B where a company has entered a relevant insolvency procedure. This includes certain financial services.
242 It also ensures that certain ‘essential’ supplies, which are already subject to sections 233 and 233A, are not also subject to section 233B, thereby avoiding overlap between new and existing provisions.
Clause 13: temporary exclusion for small suppliers
243 Suppliers which are small entities are temporarily excluded from the effect of the new section 233B of the Insolvency Act 1986. Where the company enters a relevant insolvency procedure and a supplier to the company meets the qualifying conditions of a small entity, set out in this section, section 233B of the Insolvency Act shall not apply to that supplier. The qualifying conditions are that at least two of the following apply: the supplier’s turnover was not more than £10.2 million (or an average of £850,000 each calendar month if the supplier is in its first financial year) ; the supplier’s balance sheet total was (or is) not more than £5.1 million; and the number of the supplier’s employees was (or is) not more than 50. The period for which this exclusion applies begins with the day on which this Act comes into force and ends with 30 June 2020 or one month after the coming into force of this Act, whichever is later.
Clause 14: protection of supplies of electricity, gas, water etc - Northern Ireland
244 This clause amends Article 197 of the Insolvency (Northern Ireland) Order 1989. The existing Article prevents utility suppliers demanding payment of outstanding charges as a condition of continuing supply to companies subject to insolvency proceedings where the insolvency office-holder requests this. The supplier can insist the office-holder personally guarantees payment of charges for supplies made while the insolvency procedure is underway. The amendments are to apply Article 197 to new categories of electricity provider and to suppliers of IT goods and services and to cover cases where utility supplies are made by a landlord. Article 197 is the equivalent for Northern Ireland of section 233 of the Insolvency Act 1986. The amendments made by clause 14 correspond to those that were made to section 233 by Article 2 of the Insolvency (Protection of Essential Supplies) Order 2015 (S.I. 2015/989). They are intended to keep the Article in line with that section. They are necessary because the amendments made by clauses 12 and 13 build on them.
Clause 15: further protection of essential supplies - Northern Ireland
245 This clause inserts new Article 197A into the Insolvency (Northern Ireland) Order 1989. Article 197A will apply to the same range of utility supplies as Article 197 and will prevent the supplier relying on any clause in a contract which would entitle the supplier to terminate the contract or the supply, or do anything else (such as raising the price) where the customer enters administration or a company voluntary arrangement. The new Article corresponds to section 233A of the Insolvency Act 1986, which was inserted by Article 4 of the Insolvency (Protection of Essential Supplies) Order 2015 (S.I. 2015/989). Its insertion is necessary because the amendments made by clauses 12 and 13 build on it.
Clause 16: protection of supplies of goods and services – Northern Ireland
246 This clause makes provision for Northern Ireland that corresponds to the provision made by clause 12 for Great Britain. The clause introduces two new Articles 197B and 197C and Schedule 2ZZA into the Insolvency (Northern Ireland) Order 1989. Article 197B prohibits the use of termination and other insolvency related clauses in contracts for the supply of goods and services unless exempted under Schedule 2ZZA. Article 197C includes powers to amend both Article 197B and the exemptions listed in Schedule 2ZZA by regulations. The Articles and Schedule correspond to sections 233B and 233C and Schedule 4ZZA of the Insolvency Act 1986, respectively.
247 This clause amends Article 197 of the Insolvency (Northern Ireland) Order 1989. The amendments made by clause 14 correspond to those that were made to section 233A by Article 4 of the Insolvency (Protection of Essential Supplies) Order 2015 (S.I. 2015/989). They are intended to keep the Article in line with that section. They are necessary because the amendments made by clauses 12 and 13 build on them.
Clause 17: temporary exclusion for small suppliers – Northern Ireland
248 This clause makes provision for Northern Ireland corresponding to that made for Great Britain by clause 13, providing the same exclusion from Article 197B of the 1989 Order that clause provides from section 233B of the 1986 Act.
Power to amend corporate insolvency or governance legislation
Clause 18: power to amend corporate insolvency or governance legislation
249 This clause sets out how and under which circumstances the power to make temporary amendments under this provision may be used. Modifications may be made both to the circumstances under which an insolvency procedure applies, and to the procedure itself. Modifications may also be made to provisions on the liability and duties of company directors and other persons with corporate responsibility.
Clause 19: purposes
250 This section sets out conditions for using the power, in that it may only be used to reduce or assist in reducing the number of companies entering insolvency processes or restructuring procedures, to mitigate the impact of an increased number of cases entering those procedures, or to mitigate the effect of the insolvency regime on the responsibilities of directors of those companies whose businesses are struggling due to the impact of the COVID-19 pandemic.
Clause 20: restrictions
251 Restrictions on the use of the power contained within the provision, as set out in the narrative above, are in this clause.
Clause 21: time-limited effect
252 This clause prescribes the time limited nature of the temporary amendments made under the power. These may be in place, or apply to circumstances occurring, for a maximum of 6 months, but that period may be extended by repeated use of the power. Subsections (3) and (4) impose a duty on the Secretary of State to keep temporary changes under review, and to revoke them if they are no longer needed or to amend them if circumstances have changed.
Clause 22: expiry
253 The expiry of this temporary power to make regulations is dealt with by this clause, which states that the Secretary of State may not use the power after 30 April 2021. This date may be changed, but may not be extended beyond a year. Such an extension of up to a year may however be made more than once.
Clause 23: consequential provision etc
254 This section allows for consequential, incidental and supplementary changes to be made in respect of temporary amendments.
Clause 24: procedure for regulations
255 This clause sets out the procedure which must be followed when regulations are made by SI under this provision.
256 SIs containing regulations for temporary amendments made under section 18, including extensions to those already made, are subject to the "made affirmative" procedure, so are effective immediately but must be laid as soon as possible after being made, and approved by both Houses within 40 days. If that time expires before debate has been possible, the SI may be re-made.
● Where under section 21 a temporary change is no longer required, it may be revoked by SI using the negative resolution process.
● An SI making regulations under 18 which acts to merely revoke other regulations made by powers under that section, may also be effected through a negative resolution process.
● An SI containing regulations under section 22 to extend the period during which the power under section 18 may be used, is subject to the standard affirmative procedure.
Clause 25: interpretation
257 Section 25 defines terms used in sections 18 to 24. In particular it sets out to which legislation amendments may be made using the power under section 18, and what is meant by a corporate insolvency and a corporate restructuring procedure.
Power to amend corporate insolvency or governance legislation: Northern Ireland
Clause 26: power to amend corporate insolvency or governance legislation
258 This clause provides the Department for the Economy in Northern Ireland or the Secretary of State with the power to make regulations amending Northern Ireland corporate insolvency and governance legislation corresponding to the power provided to the Secretary of State under clause 18 to make regulations for the same purpose to apply in GB.
Clauses 27, 28, 29, 30, 31 and 34: purposes, restrictions, time-limited effect, expiry, consequential provision etc, interpretation.
259 These clauses correspond to clause 19, 20, 21, 22, 23, and 25 for GB respectively.
Clause 32: procedure for regulations made by the Department
260 This clause provides the procedure for making regulations relating to the amendment of Northern Ireland corporate insolvency or governance legislation where the regulations are made by the Department for the Economy in Northern Ireland.
Clause 33: procedure for regulations made by the Secretary of State
261 This clause provides the procedure for making regulations relating to the amendment of Northern Ireland corporate insolvency or governance legislation where the regulations are made by the Secretary of State for Business, Energy and Industrial Strategy.
Meetings and filing requirements
Clause 35 and Schedule 14: meetings of companies and other bodies
262 Clause 35 and Schedule 14 make provision about qualifying meetings of qualifying bodies.
263 Paragraph 1 of Schedule 14: make provision as to the meaning of a "qualifying body".
264 Paragraph 2: makes provision as to the meaning of the "relevant period". The relevant period begins with 26 March 2020 and end with the 30 September 2020. The Secretary of State (or, in certain cases, the Scottish Ministers or the Department for the Economy in Northern Ireland) may by regulations shorten or extend the end of the relevant period. If regulations are extending the relevant period, they must do so by no more than three months at a time and the period must not be extended beyond 5 April 2021. This is intended to ensure that the temporary flexibilities provided for in Schedule 14 only apply for so long as they are needed to enable bodies to hold meetings in a manner consistent with the need to prevent the spread of COVID-19.
265 Paragraph 3: makes provision as to the manner in which AGMs and other meetings may be held during the relevant period. It provides that a meeting need not be held at a particular place; that meetings may be held and votes may be cast by electronic or other means; that the meeting may be held without a quorum of participants having to be together in one place; and that members do not have the right to attend in person, to participate other than by voting, or to vote by particular means. Members will however continue to have a right to vote by some means.
266 These temporary provisions are intended to ensure that qualifying bodies are able to hold AGMs and other meetings in a manner consistent with the need to prevent the spread of COVID-19. The requirements of a qualifying body’s constitution or rules, and any relevant provisions in legislation, have effect subject to these temporary provisions.
267 Paragraph 4: enables the appropriate national authority to by regulations make further or connected provision, or to make provision about any notice or other document relating to a meeting held by a qualifying body during the relevant period. The power may be used to make provision to disapply a qualifying body’s constitution or rules, and to disapply or modify any relevant legislative provision.
268 Paragraph 5: makes provision to extend the period within which a qualifying body must hold an AGM. It applies in circumstances where a qualifying body was or is required to hold an AGM before the end of a period expiring during the period between 26 March to 30 September 2020. It has the effect of giving businesses until the end of that period to hold their AGM.
269 Paragraph 6: confers a power to make regulations to extend the period within which a qualifying body must hold an AGM. The power is exercisable in relation to qualifying bodies with a requirement to hold an AGM during a period which overlaps with the relevant period ("the overlapping period"). Regulations made under this paragraph may not be used to extend the period for holding an AGM by more than 8 months. In the case of a qualifying body to which paragraph 5 applies, the period beginning with the due period and ending with the relevant period will be the "overlapping period" (see paragraph 5(2)), and so regulations made under this paragraph will have the effect of further extending the period within which the body must hold its AGM.
Clauses 36, 37 and 38: temporary extension of period for company to file accounts and reports
270 These clauses make provision to extend the period within which companies must file certain information.
271 Clause 36 provides for a temporary extension to the period which a public company has to file accounts and reports with the registrar at Companies House. By way of example, if a public company’s accounting reference period ends on 1 December 2019 then under section 442 of the Companies Act 2006, the directors of the company must deliver to the registrar the company’s accounts and reports on or by 1 June 2020. This deadline of 1 June 2020 falls within the time period specified in subsection (1) and is therefore extended by subsection (2) until the 30 September 2020.
272 Clause 37 applies to Companies, European Economic Interest Groupings, Limited Liability Partnerships, Limited Partnerships, Overseas Companies, Societas Europaea, Unregistered Companies and Scottish Qualifying Partnerships who are required to file certain documents, or in respect of whose assets an interested person wishes to register a charge with the registrar at Companies House ("the Filings").
273 Subsection (1): enables the Secretary of State to make regulations to extend the time period which a company or other entity has to provide the registrar with the Filings. This is to recognise the difficulties which businesses may face in meeting the existing statutory deadlines due to the circumstances created by COVID-19.
274 Subsection (2): contains the maximum time periods which may be substituted for the existing periods for the Filings.
275 Subsection (8): provides that the power to extend the time periods for the Filings is time limited.
276 Clause 38 lists the provisions referred to in subsection (1) of clause 37 and allows for certain deadlines to be extended. These deadlines include the periods for filing accounts and confirmation statements. They also include the time allowed to notify the registrar of certain relevant events that are covered by the confirmation statement, such as notifying the registrar of a change in director. In addition, the regulations may extend the deadline for registering a charge with Companies House.
Power to change periods
Clause 39: power to change period during which GB temporary provisions operate
277 This clause provides a power, which allows the Secretary of State by regulations to amend relevant provisions, which relate to the COVID-19 pandemic and therefore only have temporary effect, by either curtailing the time period specified in that provision or prolonging it by up to six months. The provisions are: suspension of liability for wrongful trading; prohibition of petitions based on statutory demands; restriction on petitions where company affected by coronavirus; modification of Insolvency Rules; and temporary exclusion for small suppliers.
Clause 40: power to change period during which NI temporary provisions operate
278 This clause makes similar provision for Northern Ireland
Implementation of insolvency measures
Clause 41: modified procedure for regulations applying new insolvency measures etc
279 This clause allows certain specified types of provision made by regulations, which would ordinarily be subject to the affirmative procedure, to instead for a temporary period of six months be made using the negative procedure.
280 The types of provision specified include provision made applying, or in connection with, the new insolvency measures (those relating to the moratorium or termination clauses in supply contracts) to charitable incorporated organisations under the Charities Act 2011, provisions made in connection with the application of the moratorium to LLPs under the Limited Liability Partnership Act 2000, as well as provision made under the new section A49 of the Insolvency Act 1986 (power to modify Part A1 (moratoriums) in relation to certain companies) and amendment to the list of companies eligible for the moratorium. For the same temporary period, the clause also disapplies the consultation duty contained in the Charities Act 2011 in relation to any such regulations concerning CIOs.
Clause 42: modified procedure for regulations of the Welsh Ministers
281 This clause allows certain specified types of provision made by Welsh Ministers by regulations, which would ordinarily be subject to the affirmative procedure, to instead for a temporary period of six months be made using the negative procedure.
282 The provisions specified are provisions under section A49(2) or paragraph 21 of Schedule ZA1 to the Insolvency Act 1986 or section 247A of the Charities Act 2011. All provisions relate to how the moratorium provisions relate to social landlords registered under the Housing Act 1996.
Clause 43: modified procedure for regulations of the Scottish Ministers
283 This clause allows certain specified types of provisions made by Scottish Ministers by regulations, which would ordinarily be subject to the affirmative procedure, to instead for a temporary period of up to six months, be made using the negative procedure.
284 The provisions specified are provisions under section A49(3) or paragraph 22 of Schedule ZA1 to the Insolvency Act 1986. All provisions relate to how the moratorium provisions relate to social landlords registered under the Housing (Scotland) Act 2010.
General
Clause 44: power to make consequential provision
285 This clause provides a power which allows the Secretary of State or the Treasury, by regulations, to make provision that is consequential on this Act.
286 In particular, the power may be used to amend, repeal, revoke or otherwise modify any provision within this Act or any provision made by or under primary legislation passed or made either before this Act is passed or later in the same Parliamentary session. The power to amend or repeal any provision made by this Act cannot be used more than 3 years after the day on which it is passed.
287 Regulations under this section may make different provision for different purposes and may include transitional or transitory provisions or savings.
288 Where regulations modify primary legislation, the affirmative procedure must be used. Otherwise, the regulations can be made under the negative procedure. This provision may be used to amend primary legislation passed in any part of the United Kingdom.
Clause 45: extent
289 This clause sets out the territorial extent of this Bill, which describes the jurisdiction in which the Bill forms part of the law. The territorial extent of the Bill is, variously, the United Kingdom; England and Wales and Scotland; England and Wales only; Scotland only; or Northern Ireland only.
290 To the extent that the provisions of the Bill fall within the legislative competence of devolved legislatures, the legislative consent procedure would be appropriate.
Clause 46: commencement
291 This clause sets out that the provisions in this Bill, except paragraph 51 of Schedule 3, will come into force on the day after the Act is passed. Paragraph 51 of Schedule 3 will instead come into force on the day appointed using regulations made by the Secretary of State.
Clause 47: short title
292 This clause is self-explanatory.